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Departmental Performance Report: 1
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Executive Summary

During the period in review, the Department of Finance Canada played an important role in the government's efforts to achieve the following objectives:

• a secure financial future
• a competitive and secure financial services sector
• Getting Government Right
• secure social programs

Highlights of the department's activities in support of these objectives are provided below.

A Secure Financial Future

For 1998–99, the government recorded its second consecutive budget surplus. This marked the first time in almost half a century that the federal government recorded two surpluses in a row.

Continued fiscal balance allowed the government to reduce taxes for all taxpayers in Canada, building on the general tax-relief measures introduced in the previous year's budget.

For example, following on a 1998 budget measure that raised by $500 the amount of income that low-income taxpayers can earn before paying income tax, the 1999 budget increased that amount to $675 and extended it to all taxpayers. In addition, the 1999 budget also eliminated the 3-per-cent surtax for all taxpayers. The previous year's budget had eliminated the surtax for taxpayers with incomes up to about $50,000.

In 1997-98, Canada's debt-to-GDP ratio declined 64.4 per cent -- down from a peak of 71.2 per cent in 1995-96. Our debt-to-GDP ratio is on a permanent downward track, not only because of economic growth, but also because the federal government is actually paying down its debt. Canada's net public debt of $576.8 billion is down $6.4 billion since 1996–97.

Sound economic and fiscal management on the domestic front is not the only ingredient of a secure financial future for Canadians. In an increasingly integrated global economy, international financial stability is just as essential. In a number of key international forums, including G-7 Finance Ministers' meetings and Annual Meetings of the IMF and World Bank, Canada has advanced proposals for reforming the global financial architecture in order to minimize the risk and severity of financial crises. During the period in review, the Department of Finance Canada played a leading role in hosting the May 1998 meeting of finance ministers representing the Asia-Pacific Economic Co-operation (APEC) economies, as well as the September 1998 Commonwealth Finance Ministers' Meeting.

A Competitive and Secure Financial Services Sector

In March 1999, legislation and regulations came into force implementing a demutualization regime for life insurance companies. The purpose of this new regime is to give mutual life insurance companies the flexibility to pursue a stock company structure and thereby gain access to more sources of capital.

Throughout the period in review, the department played a lead role in developing the government's response to merger proposals put forward by four of Canada's largest banks, as well as in creating legislation and regulations allowing foreign banks to branch directly into Canada. The foreign bank branching legislation subsequently came into force in June 1999.

During the 1998-99 fiscal year, the department continued its work in the area of financial sector reform. This work culminated in the June 1999 release of a policy paper entitled Reforming Canada's Financial Services Sector: A Framework for the Future . This document contains 57 measures that will form the basis of legislation to reform the financial services sector with a view to promoting efficiency and growth, fostering domestic competition, empowering and protecting consumers, and improving the regulatory environment.

Getting Government Right

The Department of Finance Canada contributes to this objective by helping to identify possibilities for privatizing and commercializing government operations. In May 1998, Theratronics International Limited was sold to MDS Health Group Inc. for $15.5 million.

Secure Social Programs

The 1999 federal budget announced that the provinces and territories would receive an additional $11.5 billion for health care over the next five years. Of the $11.5 billion in additional funding for health, $8 billion will be provided through future-year increases in the Canada Health and Social Transfer (CHST), while $3.5 billion was provided as an immediate one-time supplement to the CHST from funds available in the fiscal year ending in 1999. This represented the largest single investment by the government since coming to office in 1993.

During the period in review, the department concluded consultations for the establishment of financial arrangements for the new territory of Nunavut, as well as the renewal of financial arrangements with the other territories. The department also consulted with the provinces to prepare for the renewal of Equalization legislation effective April 1, 1999.

The department's performance accomplishments are outlined in detail in this report.

Chart of Key Results Commitments

In 1998–99, Canada continued to benefit from sound economic and fiscal management. For the first time in nearly half a century, the federal government's budget was in surplus for two consecutive years.

This allowed the government to increase funding for health care by $11.5 billion in the 1999 budget -- the largest single investment ever made by this government. The 1999 budget also built on the previous budget's tax relief measures by extending tax relief to all taxpayers in Canada. In addition, through strategic investments in knowledge and innovation, the government demonstrated its commitment to helping Canadians acquire the skills they need to seize the opportunities provided by the knowledge-based economy.

Decisions like these are not merely about dollars and cents. Fundamentally, they are about the kind of society we want to live in, and the kind of country we want to pass on to our children.

In managing this precious legacy on behalf of Canadians, the government must remain open and accountable. I am, therefore, pleased to submit the 1998–99 Departmental Performance Report. By providing a detailed account of the Department of Finance Canada's activities and accomplishments over the past year, this report places Canadians in a better position to judge how well it is fulfilling its mandate.

In presenting this report, I acknowledge with gratitude the extraordinary efforts by Department of Finance Canada officials in support of a prosperous and secure future for all Canadians.

The Honourable Paul Martin, P.C., M.P.

Section II: Departmental Overview

A. Mandate, Roles and Responsibilities

The department's fundamental purpose is to assist the government in developing and implementing economic, social and fiscal policies and programs that foster growth, create jobs and promote a secure society. The department serves as the government's primary source of analysis and advice on the broad economic, social and financial affairs of Canada. In addition to preparing the budget, the department provides analysis, advice and recommendations on tax and trade policy, and prepares tax and trade legislation; provides analysis, advice and recommendations relating to the management of federal financial assets and liabilities, including the management of federal borrowing on financial markets; manages transfers and fiscal relations with the provinces and territories; develops financing and investment policy for the Canada Pension Plan (CPP) in conjunction with the provinces; provides analysis, advice and recommendations on the annual Employment Insurance premium rate setting where approval of the Minister of Finance is required by law; represents Canada within international financial institutions and international economic and trade forums; develops policies for, and advises on, the financial sector and financial markets.

This requires monitoring and researching the performance of the Canadian economy in the all-important aspects of: output and growth, employment and income, inflation and interest rates, and long-term structural changes. The department is also vitally concerned with financial market developments, trade and other international economic matters that bear on Canada's domestic performance and competitiveness.

In its central agency role, the department advises on the economic, fiscal, social and tax implications of key priorities. These include jobs and growth; productivity; education and training; science, technology and innovation policies; environment initiatives; privatization and commercialization initiatives; defence and international assistance expenditures; and efforts to advance Canada's social policies and programs, in particular, health and federal-provincial transfer programs.

The Department of Finance Canada also operates two statutory spending programs: the Public Debt Program and the Federal-Provincial Transfers Program. The department is responsible for the delivery of payments to such major international financial institutions as the International Monetary Fund, the World Bank and the European Bank for Reconstruction and Development, and to the Domestic Coinage program. Although all Domestic Coinage payments are statutory in nature, international financial institution transactions include payments made under both statutory and voted authorities.

The department interacts with other government departments, agencies and Crown corporations, and private-sector stakeholders to encourage co-ordination and harmony among all federal initiatives, particularly those affecting the economy and financial markets. As well, the department constantly works towards improved co-operation -- especially on fiscal, trade and taxation issues -- between the federal and provincial governments and internationally.

The department provides services to the following client groups:

C. Objectives

The Department of Finance Canada operates under sections 14-16 of the Financial Administration Act, which provides the Minister with broad responsibility for "the management of the Consolidated Revenue Fund and the supervision, control and direction of all matters relating to the financial affairs of Canada not by law assigned to the Treasury Board or to any other Minister". The following are the department's program objectives:

• Economic, Social and Financial Policies Program – appropriate policies and sound advice with respect to economic, social and financial conditions and to the government's agenda; responsible administration of international financial obligations and subscriptions; payment of the production costs for domestic circulating coinage; responsible financing of special projects; and effective and efficient corporate administration.

• Public Debt Program – the statutory funding of interest and service costs of the public debt and the issuing costs of new borrowings, if required.

• Federal-Provincial Transfers Program – transfer payments pursuant to statutes with respect to the Canada Health and Social Transfer, Equalization and other transfers, and pursuant to agreements with respect to Territorial Formula Financing.

The department oversees three programs that account for all Public Debt expenditures, Federal-Provincial Fiscal Arrangements expenditures and a portion of expenditures out of the international assistance envelope. These programs and associated business lines -- depicted in the chart on the following page -- are delivered by six policy branches supported by the Consultations and Communications Branch, the Law Branch and the Corporate Services Branch. Specific branch responsibilities are described below.

• Economic and Fiscal Policy – is responsible for developing appropriate policies and providing sound advice on the domestic and international economic and financial outlook, on the government's overall fiscal framework, expenditure plan and resource allocation, and on the government's overall economic policy framework.

• International Trade and Finance – is responsible for developing appropriate policies and international negotiating strategies and providing sound advice on international trade and finance with specific reference to import tariffs and trade remedies, foreign direct investment and economic co-operation, defence policies and expenditures, international development assistance and international financial relations.

• Tax Policy – is responsible for developing appropriate policies and providing sound advice on the Canadian tax system.

• Financial Sector Policy – is responsible for developing appropriate policies and providing sound advice on the management of the government's financial assets and liabilities including government debt management, on legislation governing federally regulated financial institutions and on financial and borrowing issues relating to Crown corporations.

• Federal-Provincial Relations and Social Policy – is responsible for developing appropriate polices and providing sound advice on federal-provincial fiscal arrangements and on Canadian social policies and programs, including Old Age Security programs, Canada Pension Plan and Employment Insurance.

• Economic Development and Corporate Finance – is responsible for developing appropriate policies and providing sound advice on the economic, fiscal and financial implications of the government's microeconomic policies and programs, including loans, investments and guarantees of the Crown; on proposals for assistance to major projects or corporate restructuring initiatives advanced by the private sector; and on the management and, as appropriate, the privatization of Crown corporations and other corporate holdings and the commercialization/privatization of government services.

• Consultations and Communications – is responsible for providing strategic communications advice and suitable public affairs support.

• Law Branch – is responsible for providing sound legal advice and for processing applications under the Access to Information Act and the Privacy Act in an accurate and timely manner.

• Corporate Services – is responsible for providing effective and efficient financial, human resources, information technology, security and administrative systems and expertise.

Business Line, Organization Composition and Resources Chart*

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